Observations by an academic researcher on the use of “open”-ness as a competitive strategy, with a particular interest in coping with the commoditization of information goods and technologies in an Internet-enabled world.

Tuesday, December 8, 2009

From John Gapper of the Financial Times blog, on plans to redirect TARP funds for other purposes:

The suggested use of the Troubled Asset Relief Programme to support US job creation rather than simply to address the financial crisis strikes me as morally hazardous.

As the FT reports, some Democratic members of Congress are pressing for some of the $700bn Tarp fund to be used for tax relief for job creation, or for state spending programmes.…Earlier this year, Congress became extremely angry with hindsight at the success of Hank Paulson, the former Treasury secretary, in getting approval for Tarp and then changing tack on how the money was used. Instead of being used to buy assets, its primary use became to invest directly in banks.

Now, Congress seems to want to change the rules itself and use the Tarp money for its favoured projects, in the same way that stimulus funds were divided among states and districts.

Gapper worries abuse of TARP funds for pork barrel spending this time would kill chances of creating another TARP during the next financial market crisis. (He thinks that would be a bad thing.)

The Ludwig von Mises Institute notes the problem with claims of tax-funded stimulus efforts. It cites Henry Hazlitt and his example of a tax-funded bridge project:

Two arguments are put forward for the bridge, one of which is mainly heard before it is built, the other of which is mainly heard after it has been completed. The first argument is that it will provide employment. It will provide, say, 500 jobs for a year. The implication is that these are jobs that would not otherwise have come into existence.…It is true that a particular group of bridgeworkers may receive more employment than otherwise. But the bridge has to be paid for out of taxes. For every dollar that is spent on the bridge a dollar will be taken away from taxpayers. If the bridge costs $10 million the taxpayers will lose $10 million. … Therefore, for every public job created by the bridge project a private job has been destroyed somewhere else.…But then we come to the second argument. The bridge exists. … It has come into being through the magic of government spending. …

Here again the government spenders have the better of the argument with all those who cannot see beyond the immediate range of their physical eyes. They can see the bridge. But if they have taught themselves to look for indirect as well as direct consequences they can once more see in the eye of imagination the possibilities that have never been allowed to come into existence. They can see the unbuilt homes, the unmade cars and washing machines, the unmade dresses and coats, perhaps the ungrown and unsold foodstuffs.

Washington repeatedly fails because it refuses to admit that almost without exception government actions do not increase employment on net. Only the private sector in pursuit of opportunity can create jobs on net. The best we can hope from government is that it keeps to a minimum the jobs it prevents and the income and wealth it destroys.

The good news is that recoveries happen and they happen because an economy that enjoys flexible markets and flexible prices adjusts. It adjusts in good times and in bad. It adjusts to whatever mistakes led to the recession. It adjusts to whatever damage is done during the recession. To get the unemployment much below 10 percent over the next year will require policies that help the economy to heal itself, to adjust more quickly.